When the subject of the Tour Operators Margins Scheme (TOMS) arises, the response is usually expressionless or one of dismay. With this ‘VAT simplification’ comes a whole host of complexities and problems for businesses. Throw in Brexit and potential EU reforms, and the sector faces an uncertain future.
So, what is TOMS?
TOMS is a mandatory EU-wide simplified VAT accounting scheme for tour operators that buy-in and re-sell travel services such as passenger transport and hotel accommodation. The underlying intention of the scheme is to provide a simplification measure to facilitate trade.
In many cases it enables businesses to account for VAT on travel supplies without the supplier registering and account for tax in each member state where they enjoy the services. However, because of the wide definition of services, often sectors not intended to be brought into TOMS are pulled in alongside traditional tour operators.
If a business makes supplies under TOMS, they only account for VAT on the margin in the country of establishment. However, they cannot reclaim any VAT charged in relation to those margin schemes items.
In some scenarios this can mean the service becomes more expensive. Particularly if a non-traditional travel sector, such as an event organiser, is pulled into the scheme. Their customer would recover the VAT if they contracted directly with the provider of the service.
UK TOMS and Brexit
As it stands, for UK businesses the margin on travel services enjoyed in any member state (including the UK) is subject to the UK standard rate of VAT and the margin on travel services enjoyed in the rest of the world is zero-rated. A specific, and some would say complex, calculation must be followed in order to calculate the VAT.
When the transition period ends on 31 December 2020, the UK leaves the single market or the customs union. As a result, it will be a non-EU country.
From a UK perspective, HMRC published guidance in 2019 stating it intended that the margin on all travel services enjoyed outside the UK, which will then include the EU, will continue to be zero-rated. Under this legislation, UK tour operators will be able to continue applying a version of TOMS for services enjoyed in the UK and EU businesses will need to consider their calculation with the UK falling out of their scheme.
HMRC has not provided any further update in 2020 on the matter.
But what does this mean from an EU perspective? Will member states be content with this position? Perhaps not. As UK businesses will no longer be able to use the simplification for EU travel supplies, it is possible that some member states will require UK-based tour operators to register for VAT for supplies of travel services made in their country.
A simple one size fits all rule will not apply, because the way member states treat non-EU business already varies. HMRC highlights this as such in its Brexit guidance.